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"Stealing from Grandma Millie to buy Dick Cheney" or "Who Killed J. Clifford Baxter?" How much could Enron steal from California in raised energy prices based on fake demand? Enough to fuck us all (LA Times):

Enron Corp. employees spoke of "stealing" up to $2 million a day from California during the 2000-01 energy crisis and suggested that their market-gaming ploys would be presented to top management, possibly including Jeffrey K. Skilling and Kenneth L. Lay, according to documents released Monday.

The evidence of apparent scheming — in one recorded conversation, traders brag about taking money from "Grandma Millie" in California — is in a filing by a utility in Snohomish County, Wash. The municipal power unit north of Seattle wants refunds for alleged overcharges made by Enron during the electricity market meltdown.

The utility obtained transcripts of routinely recorded trader discussions from the Justice Department, which seized them in its Enron investigation.

While it has long been established that Enron engaged in market-gaming tactics — two top traders have pleaded guilty to fraud-related charges for manipulating California's energy market and a third awaits trial — the 450 pages of recorded conversations provide another vivid look into the organization's exploitive subculture.

They also suggest that knowledge of alleged wrongdoing may have reached the level of Skilling, Enron's former chief executive, and Lay, the former chairman.

In a Sept. 14, 2000, conversation, an employee named "Sue" [Susan J. Mara, Enron's California director of regulatory affairs until December 2001] from Enron's governmental affairs operation checks in with a trader named "Bob" for information that could be used in an in-house presentation to corporate executives.

"This is the time of year when government affairs has to prove how valuable it is to Ken Lay and Jeff Skilling," Sue said, according to the transcript.

[...]

In a different conversation in the transcripts, Enron's West Coast trading chief, Timothy N. Belden, discusses the profitability of the company's strategies in California, particularly those executed by a trading desk led by Jeffrey S. Richter:

"Well he makes … between one and two [million] a day, which never shows up on any curve shift…. He steals money from California to the tune of about a million — "

At this point the other speaker interrupts, asking Belden to rephrase what he just said.

"OK," Belden says. "He, um, he arbitrages the California market to the tune of a million bucks or two a day."

All of which leads to many questions, among them the focus of the quest for a guilty party: who would ultimately take the fall for siphoning billions of dollars from California ?

Lay and Skilling, to insulate themselves, would need a convenient scapegoat. The obvious choice would be the chairman and chief executive of Enron North America before he become chief strategy officer and then vice chairman: J. Clifford Baxter.

Not a stupid man, Cliff Baxter probably saw the writing on the wall about a week before the end of his life. That was when he visited Jeff Skilling, whose account of the meeting is unfortunately the only one we have and therefore highly suspect:

Baxter resigned in May 2001 reportedly after complaining about accounting practices that later brought down Enron. He, Skilling and other former and current Enron executives were sued by investors and employers after the company crashed.

About a week before his death, Baxter came to Skilling's home and talked for three hours.

"He was very angry about the plaintiffs' lawyers, and they were coming after him," Skilling said. "He was very angry about that because he had spent a lifetime building security for his family."

The account of the meeting Skilling gives is a little too pat. That's not a three-hour conversation. More likely what took place was something like Texas Hold 'Em: a game of who's going to show their cards first. And to whom, and at what price.

First the flop: Baxter's public dissent over the accounting practices made it probable that he was not in much of a position to insulate Skilling from anything.

Baxter's hole card: who knows, but it had to be substantially damning to the two people above him. And Skilling had to know that he and Lay were in big trouble if Baxter wouldn't cooperate.

Skilling's hole card: ruthlessness. By May 2001 Enron had already achieved everything it had set out to do: screwing California out of billions through its artificial energy pricing, and the successful secret engineering of US energy policy with a compliant vice president named Dick Cheney.

The scale of Enron's crimes were unparalleled, with devious strategies to screw everyone in sight — whole companies, states, and countries. Baxter knew it, bitched about it, and was now in a position to rat out the whole scheme to save his own ass.

In light of all that, the game ended predictably. The flicker of conscience named J. Clifford Baxter "committed suicide" a week after his three-hour poker game with Skilling. Are the quotation marks around "suicide" necessary? Maybe, maybe not.

Meanwhile, California stayed screwed. Lay and Skilling are still free men. Free and very rich men. And the ultimate mystery remains unsolved: we still don't know what Enron discussed with Cheney in those early 2001 meetings that set US energy policy.

{ 4:28 PM }

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